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Saudi GDP Shrinks in Second Quarter

Saudi Arabia’s economy contracted in the first two quarters this year, official figures show.

General Authority for Statistics figures show that gross domestic product shrank by 2.3% in the second quarter compared with the first three months of 2017, mainly over low oil prices and less production. GDP in the first quarter contracted by 3.7% compared with the last quarter of 2016, AFP reported.

Saudi Arabia, the world’s top oil exporter and the largest economy in the Middle East Arab states, has taken a series of austerity measures since oil prices collapsed in mid-2014. Until 2014, oil income made up more than 90% of public revenues.

The kingdom has since concentrated on diversification, including plans to introduce value-added tax and privatize part of state-owned oil giant Aramco.

Oil prices have partly recovered after major producers inside and outside OPEC, including Saudi Arabia, agreed last year to cut output by 1.8 million barrels per day to bolster global prices.

Producers agreed to extend the cuts for nine more months, ending in March 2018. OPEC will discuss the possibility of a further extension at a ministerial meeting next month.

The International Monetary Fund has forecast that the country’s economy will grow by a meager 0.1% this fiscal year, down from 1.7% in 2016 and 3.4% the previous year.

More alarming to analysts was the 0.6% growth in Saudi Arabia’s non-oil economy, showing the effects of government spending cuts and subdued consumer demand. That rate of expansion is insufficient to offset the impact of lower oil output or to reduce unemployment, according to Ziad Daoud, an economist with Bloomberg Intelligence based in Dubai, Bloomberg reported.

“There has been little momentum in the non-oil sector—its growth rate has been stuck at below 1% for a few quarters,” he said.

The latest data showed that businesses and Saudi consumers were still struggling to cope with government policies. Private sector activity grew at an annual rate of 0.4%, compared with 0.9% in the previous quarter.

“There is very little capital spending going on in Saudi Arabia at the moment,” Mohamad Al Hajj, an equities strategist at the research arm of EFG-Hermes in Dubai, told Bloomberg TV.

The Saudi economy hasn’t contracted for two quarters in a row since at least 2010, official data show. The kingdom doesn’t publish quarterly seasonally-adjusted data, which is used by some economists to define a recession.

A Bloomberg survey conducted before Saturday’s release show economists expect growth to grind to a halt this year, compared with a forecast of 0.5% in the previous poll.